Does SoftBank’s $33bn US power plant justify the price tag?
Inside SoftBank’s $33bn US power plant project
In the highly anticipated first round of Japan’s pledged $550bn investment in the US, the centrepiece was a gas-fired power plant in Ohio like none the world has seen before.
At an eye-watering price tag of $33bn with generation capacity equivalent to nine nuclear power plants, the SoftBank-led infrastructure project would be the biggest gas plant in the world by some distance.
“There are no comparable gas generation projects in the US,” said Eric Gimon, senior fellow at Energy Innovation, a non-partisan energy and climate change think-tank.
Last year, Japan agreed to invest $550bn in the US during President Donald Trump’s tenure in return for tariffs being reduced to 15 per cent — an audacious bilateral investment scheme without precedent.
As the flagship deal in the first round of projects worth $36bn announced last month, SoftBank’s power plant will be closely watched as a potential blueprint for investments that follow.
The supposed justification for the size and price tag is the race to build AI infrastructure. SoftBank has pledged to invest $100bn in US infrastructure during Trump’s second presidential term to fast-track the development of AI — which requires vast quantities of reliable power.
The project was hailed by US commerce secretary Howard Lutnick as a “massive America first trade win”, boasting the plant would “strengthen grid reliability, expand baseload power and support American manufacturing with affordable energy”.
But behind the scenes, Japanese officials are wrangling over the details of a project that nobody seems to have a unified idea of. Some remark that SoftBank founder Masayoshi Son may unduly benefit from Japan financing the mega-project or that it may never happen.
“Son plays a role in a good and bad sense. He always has big ideas and concepts,” said one person involved in the negotiations. “Materialising them is not so easy. The gas-fired power plant will be very difficult to complete.”
Commercial banks were struggling with the risk of putting so much funding behind one single project, the person added.
Given the vast size of the project, many expect it will be built in several phases to make permitting, insurance and surrounding infrastructure more manageable. Otherwise, “it could turn into a real morass”, Gimon said.
Energy sector specialists are wondering how a gas-fired power plant could cost $33bn. One factor, Japanese officials say, is political optics: a big number to impress voters in Ohio in the US midterm elections later this year.
Another more substantive reason is surging turbine costs, driven by the rush to build around-the-clock gas-fired power plants in the US and elsewhere to serve as the backbone for data centres.
Costs are estimated at about $2,200-$3,000 per kilowatt for combined-cycle gas turbines and $900-$1,700 per kW for combustion turbines, less efficient units used more for periods of peak demand.
Assuming the project uses two different configurations of the two turbine types, Gimon estimates the cost for the machines alone would reach $23bn to $25bn. The remaining $8bn to $10bn would likely be spent on pipelines for gas supply, transmission line upgrades and backup battery equipment, he said.
The monster project has not only raised questions about a new era of energy infrastructure costs but has also reeled Japan in as an accomplice in building hugely emitting infrastructure in the US.
John Larsen, partner at the Rhodium Group, estimates the plant would emit 16.2mn tonnes of CO₂ a year, making it the third-largest emitting power plant in the country. The top-20 list is currently exclusively made up of coal-fired power plants.
“A rush to gas is bad economic risk management,” said Gimon, who estimates the CO₂ emissions would be between 24mn to 45mn tonnes factoring in upstream methane leakage — equivalent to 5mn to 10mn cars.
“It will be interesting to see how SoftBank deals with the climate blowback of funding so much dirty infrastructure in the post-Trump era.” (Harry Dempsey)